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Fareed Zakaria GPS

Some Good Economic News, But What Does It Mean?; Interview with Zbigniew Brzezinski

Aired February 26, 2012 - 10:00   ET


FAREED ZAKARIA, HOST: This is GPS, THE GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

We have a really great show for you today. We'll start with Zbigniew Brzezinski, one of the wise men of American foreign policy. I'll ask him about Iran, about Syria, but we will also look at the bigger picture. Just what is America's foreign policy today and how's President Obama doing?

Later in the show the economy, budget, tax plans. We will talk with Robert Reich, David Stockman, and others.

Also, we'll tell you who is behind the new anti-Americanism in Egypt. You'll be surprised.

Finally, if you thought American debt was worthless, think again. I'll explain.

But first, here is my take. The American economy seems to have picked up. The Dow Jones Industrial average is hovering around 13,000, the highest since the financial crisis began in May 2008. The NASDAQ is actually at its highest level since the technology bubble burst more than a decade ago.

Now, stock prices aren't everything, but data from the economy on the ground is also slowly getting better. Jobless claims are down, housing starts are up. Things do seem to be getting better, slowly, as I said, but surely.

This is all good news for President Obama because there is a very strong correlation between economic growth and a president's prospects for re-election. The unemployment numbers are still pretty high, but they are also falling.

Also, many models suggest that unemployment is not the crucial statistic to determine whether a president will win re-election. Most people, after all, are employed. It is the rise in per capita GDP, the average person's income rise, that determines whether they feel things are getting better and, thus, whether they will vote for the incumbent or seek a change.

So, does that mean that the economy and the president are in good shape? Well, they're in better shape than they looked six months ago. Many of the crises that people worried about now seemed unlikely to completely derail American growth. Mario Draghi and the European Central Bank have insured that there will not be a total European financial collapse. There might well be a recession in Europe, but that will have a smaller affect on American growth.

Derek Thompson of "The Atlantic" points out one worrying prospect that the next debt ceiling renewal might actually have to take place before the elections, in which case expect another absurd and politicized drama since all the Republican candidates have already announced that they will not raise it. But let's hope that this is an unlikely scenario.

What's more plausible is a slowdown due to high oil prices. Oil has been creeping up now for months. It is up to $105 a barrel and over $3.50 at the pump.

Why prices have moved so much so fast is something of a mystery. Oil was at around $50 a barrel in early 2007, when all major economies were booming. Today, demand from America, China, India, Europe are all somewhat weaker, and yet prices are sky-high.

The one obvious factor, of course, is the political instability in the Middle East. Worries about Iran are probably the principal driver of these prices and the speculation surrounding it. Ironically, President Obama's foreign policy is having an impact economically that is not advantageous to him or the American economy.

Now, there isn't an easy economic path to lowering oil prices. Drilling more, raising efficiency, none of this will have much impact in the short run. For now, as so often in the past, the geopolitics of the Middle East, America, Israel, Iran, is the crucial driver of the fate of the American economy and possibly the fate of this presidency.

Let's get started.


ZAKARIA: Long before Zbigniew Brzezinski was National Security Advisor for President Jimmy Carter, he was a professor, a thinker, a theorist of foreign policy ideas. And with his new book, "Strategic Vision: America and the Crisis of Global Power," Brzezinski puts his professorial cap on again, taking a long, hard look at America's standing and offering up strategic solutions on how the United States ought to approach this brave new world.

Welcome, Zbig.


ZAKARIA: We'll get to the big picture in a moment, but, since I have you, I cannot but ask you, what do you think is going to happen with - with this crisis with Iran? You have Israel on the one hand threatening to act. You have the United States, which has been putting a great deal of pressure on Iran, but now trying to dial back a little bit of the rhetoric.

What do you think? Where is this going to end up?

BRZEZINSKI: I think it all depends on how determined, clear- headed and explicit the United States is. If we drift, if we fuss, the word's over, if we are ambiguous, it could end up very, very badly. If the United States is clear cut, if it makes it very clear to the Iranians that they're not going to be a part of the global community, if they persist in violating the NPT.

But, if at the same time we don't offer them only the choice of capitulation or strangulation, which would force them to lash out, and if we at the same time make it clear that if they continue with their investigations and research and perhaps weapons development, we will, in any case, guarantee the security of the Middle East, including that of Israel. The way we have done it for Japan and South Korea, very effectively over the years.

ZAKARIA: Yes. We've put in a nuclear umbrella over the -


BRZEZINSKI: Yes, and we did it for Europe against the Soviet Union. We can do it here, too.

So we don't need to go to war, and we have to make that very clear to our Israeli friends. We're not going to go to war. They're not going to go to war by flying over our airspace over Iraq. We're not going to support them. If they do it, they'll be on their own. The consequences would be theirs, because the price we'll all pay if they start a massive war, which the Iranians interpret as being done with our connivance, would be disastrous for us in Afghanistan, in Iraq, in terms of oil, stability in the Middle East more generally.

ZAKARIA: There is an interesting window here where the Israelis talk about a window, which is closing in terms of the Iran's technical capacity. But the real window I wonder about is the Israelis surely know that if they are going to attack, the best time to attack is before the November elections -

BRZEZINSKI: Oh, I completely agree with you.

ZAKARIA: -- because it would be difficult for the president to oppose them.

BRZEZINSKI: Absolutely. Absolutely. Absolutely right. My sense is right now they're essentially pushing to force us to give the Iranians terms of a compromise solution, but formulated in such a way that they cannot accept it.

ZAKARIA: That the Iranians cannot accept it?

BRZEZINSKI: Yes. And then, prior to the elections, they'll be tempted to strike, and this is why I think the president, when he talks in this (INAUDIBLE) on March 5th, might take into account the fact that, first of all, he was humiliated the last time Netanyahu was around, and the president of the United States shouldn't be so humiliated, and that he represents the American national interest and he has to speak unambiguously as to what it is.

ZAKARIA: And what would he - what - if you were advising President Obama, what would you tell him to say to Netanyahu?

BRZEZINSKI: Well, more or less what I said a few seconds ago, namely, this is not compatible with our interests. This will be damaging to us.

ZAKARIA: And we would oppose it if he were to -

BRZEZINSKI: The Iranians will blame us for it. They'll take action against us. We'll be paying the price. This is not acceptable, and we want you to know that. In different ways, Presidents Eisenhower, Carter and Bush One did that on other occasions.

And the Israelis are realists. Most Israelis, we also have to remember, most Israelis don't support a war. Much of the establishment of Mossad, Shinbet, the military is against it. The American Jewish community in the majority is not for it. It's just the top echelons are much more Likudnik oriented.

So when the president speaks, he speaks with some degree of political credibility, not only here, but also among the Israelis.

ZAKARIA: Well, I had Martin Dempsey on the program last week, and he said - when talking about Syria, he said very different from Libya, really doesn't make sense at this point for the United States to arm the rebels. Would you agree with that?

BRZEZINSKI: Well, it's not a question of whether I agree with that, but my approach would be somewhat differently shaped or defined than the one we're pursuing right now. I would beg the position that we will support anything that the Turks and the Saudis jointly contrive because they're our friends in the region, they're responsible, they're very interested, and they have the capacity to play a decisive role. We can then back them if they do it. But I certainly wouldn't get out front.

ZAKARIA: Isn't what's happening in Syria, though, a kind of proxy cold war, with the Iranian supporting the regime and the Saudis increasingly supporting the opposition?

BRZEZINSKI: Yes. It's even more complicated because the Israelis also have an interest, and they certainly don't have an interest in a strong, united Syria again reemerging, although that's rather unlikely these days in view of what has happened.

But we shouldn't be careless in any comparisons between Assad and Gadhafi. Gadhafi was far more vulnerable than Assad is. I think it's far from clear yet that Assad can, in fact, be overthrown at this stage.

ZAKARIA: Really? So you think - because at the end of the day they're being - the Syrian government has been pretty brutal, and question is -

BRZEZINSKI: Yes. Absolutely.

ZAKARIA: -- will that brutality work?

BRZEZINSKI: Well, unfortunately, you know, brutality very often in history and throughout the world works. But I would be very much guided by the Turks and the Saudis.

The Turks had a regional role to play. They're assuming that role. They have intelligent leadership. They had been trying. I think we should back them.

But the choice of how to act, and particularly if one is to be engaged in some fashion militarily, I think it has to be made first by them and also the Saudis, and not first by us.

ZAKARIA: Egypt, what would you do about the - an Egyptian government still essentially a military government that is trying Americans? Would you - would you cut aid to Egypt?

BRZEZINSKI: Well, if we're going to start cutting aid to governments that don't do our bidding, then we had better be fair and across the board. We're a little more - we're a little too selective on that.

And I would think about doing something along those lines that excess. We have a fundamental stake in Egyptian stability, and we have also a stake in Egyptian-Israeli peace. So we have to be very careful not to overdo our negative reactions in a fashion that there's a backfire adversely affecting our other interests.

ZAKARIA: We have lots more to talk about with Zbigniew Brzezinski. When we come back, we'll ask him how President Obama is doing in foreign policy overall and what his long-term strategy for the United States would be in this new world.



BRZEZINSKI: I mean, look at those Republican debates. I must say I am literally - I literally feel embarrassed as an American when I see those people orate.




ZAKARIA: And we are back with Zbigniew Brzezinski, the former National Security Advisor.

Zbig, you supported President Obama. In some ways somewhat surprising because you have been traditionally seen as a sort of hawkish Democrat, but then you were quite enthusiastic about him. In the book I'd say you give him a kind of mixed grade. Would that be fair?

BRZEZINSKI: It's fair, but I don't really discuss his foreign policy too much in the book. I tried to look beyond the immediate, and I asked myself, given the crisis in America, given the shift in the center of global power gravity from the West to the East, given the new reality of global political awakening, how should the United States perform on the world scene and how it has to overcome its domestic problems in order to be effective internally? In that context, I comment on Obama somewhat, but not explicitly.

My view, however, is the following. One, he really understands the world better than any other politician. And I wouldn't even waste time comparing him to what we hear from the Republican candidates for presidency because that's so unrealistic and so primitive that it's embarrassing.

The question I have is whether he's understanding the world well, has enough of an inner self-confidence and a sense of historical conviction to use American power in a decisively effective fashion, which doesn't mean necessarily militarily, but which means with strategic wisdom and commitment. And, unfortunately, for example, in the Middle East, that these days is widely questioned.

ZAKARIA: Well, how would you do it differently in the Middle East?

BRZEZINSKI: Well, first of all, I would have pursued the Iranian - the Israeli- Palestinian peace process.

ZAKARIA: But he tried and -

BRZEZINSKI: No, not really. He talked about it. When push came to shove, he didn't try.

ZAKARIA: He backed off.

BRZEZINSKI: He backed off.

And, you know, I have been involved in that for 30 years. The fundamental lesson to me is this - the Palestinians are too weak and too divided to make concessions first. The Israelis are too strong and too self-confident to make concessions first. Without something like the United States playing the role of assertive arbiter, there will never be peace.

And there is no peace in the short run, the Palestinians will pay a high price; in the long run, the Israelis will be threatened; and, in between, our interest will suffer.

ZAKARIA: Talk about this issue of political awakening that you described in the book, and you've done it in a previous one, because I think this is a really crucial part of this new world we're going into.

BRZEZINSKI: Absolutely.

ZAKARIA: Everywhere you see the - the stories that countries are more assertive, people are more assertive.

BRZEZINSKI: Yes. You're absolutely right. I think this is the new phenomenon of our time. For the first time in all of human history, all of humanity's politically conscious and active, and staring unrestless and resentful. That's a new reality. And that means that hegemonic domination by single power worldwide is probably now impossible.

ZAKARIA: So when you read Mitt Romney and his advisors saying, you know, America is number one. This is an American century. We should just assert our power.

BRZEZINSKI: Well, the last Republican president said that God chose America and history commissioned America to be playing this kind of a role. And that kind of rhetoric is just divorced from realities to the point of absurdity. Actually to the point of danger for us.

I think we have to pursue a policy in which you build larger coalitions and manage relationships with greater skill. So I advocate, for example, that we pursue patiently and persistently a larger Atlantic-European community which embraces Turkey, which embraces Russia, if it democratizes, and in the Far East we play the role of Great Britain - the role that Great Britain played in Europe in the 19th Century.

We balance. We maneuver. We don't get tied up in alliances. We don't get involved in mainland wars. We try to reconcile China with Japan. We try to mediate India and China. And we particularly pursue a stable partnership with China.

That's a very complicated role that requires skill.

ZAKARIA: Now, I don't know if you - if you're aware, but the Chinese foreign minister has written a memo which really takes - which attacks your foreign affairs article from - you know, which is based on this book. It's the Chinese view what you're describing, this greater West -


ZAKARIA: -- as an instrument for the containment of China.

BRZEZINSKI: That's wrong. That's a misinterpretation. I'm surprised he does it, because actually I know him well, and that's a misconception. Balance is not the same thing as a coalition against.

I think we do need a stronger West, because, otherwise, the values that the West represents will be dissipated. I think it's important for those values to be preserved and increasingly the rest of the world be encouraged to emulate them, to some extent. That is a very constructive role for the West to play.

But a West that is divided into a weak Europe, an inward oriented and divided America, and a hostile and stagnating Russia is a world that will be very unstable because of the weight of Asia and the uncertainties among Asian powers. So we need a vital West and a strong America in that context to be a partner but also a mediator towards the East.

ZAKARIA: You - you say in this book, and you also do in a few books back - as you could tell, I'm a connoisseur of your books - you talked about how the internal strength of America was really at the heart of this, and that America - and you quite presciently said this I think 20 years ago, was a society becoming a society too much based on consumption and debt and a kind of self-indulgence.

BRZEZINSKI: And greed. And greed. And social unfairness. I'm very worried about the fact that our society has become so dramatically demarcated into the few very rich and many more poor.

ZAKARIA: You think all this makes it difficult for us to play a global role?

BRZEZINSKI: Absolutely, because in this politically awakened world, interactions are so close and intimate that people are intimately aware of what other societies are like, and this is why I have a chapter in my book on the waning American dream. I think the American dream can be re-awakened, but only if we very seriously tackle our domestic problems seriously across the board, and right now I don't see that being very likely in the near future. But I still am convinced that we have residual assets that would enable us to do it if we begin to seriously concentrate on these problems.

ZAKARIA: In this fall's election, you still prefer Obama to the alternatives?

BRZEZINSKI: Oh, without a question. Without a question. I mean, look at those Republican debates. I must say I am literally - I literally feel embarrassed as an American when I see those people orate.

One of them sounds like a medieval Savonarola. Another one is trying to explain why he has some of his wealth located in the Cayman Islands. And someone else would go back to 1780. And then there's someone who is using his credentials as a repudiated speaker of the Congress to be president. I mean, this is just embarrassing.

ZAKARIA: Zbigniew Brzezinski, pleasure to have you on.

BRZEZINSKI: It's good to be with you, Fareed, as always.

ZAKARIA: Up next, Egypt one year on from the revolution. There is a rising anti-American sentiment, and who is behind it? Not who you think.

Stay with us.


(COMMERCIAL BREAK) ZAKARIA: Welcome back to the GLOBAL PUBLIC SQUARE. Now for our "What in the World?" segment.

I want to show you a strange cartoon from Egypt. It's of Uncle Sam. He looks sinister and mean, hunched over a door with a keyhole. The implication, I suppose, is that the U.S. is spying on Egyptians.

Another cartoon shows him with a pistol. He is pointing it at an Egyptian man with a canon. The caption in Arabic says "dignity." The point here is quite clear - Americans are robbing Egyptians of their dignity. What is going on?

These cartoons were published recently in a state-run newspaper and they highlight a disturbing trend. Egypt's transitional government is trying to whip up anti-American fervor. Its latest ploy is a high publicity trial set to begin today.

This is a list of 43 people, nearly half of them U.S. citizens who stand accused of illegally receiving foreign funds to promote democracy. The government claims they didn't have a license to do their work. In reality, these people had filed registration papers under the old regime of Hosni Mubarak. They were told their papers were in order.

Besides, it is a little rich for the Egyptian government, which receives $1.2 billion in aid from the United States every year, to harass charities about getting funds from America. So what is going on?

In a recent column, the "New York Times'" Tom Friedman points out that the ongoing trial was the brainchild of an old Mubarak crony, Faiza Aboul Naga, Egypt's Minister of Planning and International Cooperation. Her strategy, Friedman says, is to unite Egyptians by standing up to the foreigners.

She plays this game by taking advantage of a fractured Egyptian leadership. It seems she got the military on board by showing them how all these human rights workers from abroad are their most vocal critics. Rounding them up, the logic goes, would show how Egypt's protests are really driven by external forces.

In fact, Egypt's uprising was entirely local. There were no evil foreign forces at work. America was caught unaware, as were all foreign governments when the protest started. The real problem is that Egypt's old regime is clinging on to power - people like Aboul Naga and the power behind her, the military.

Remember, Egypt's last four presidents, including Hosni Mubarak, came from the armed forces, and that group remains unwilling to cede control even to the newly elected parliament. Many fear the army is now trying to shape a new constitution to its benefit.

Meanwhile, the armed forces have huge economic interests, and they have always been opposed to economic reforms, even the ones under Gamal Mubarak, because they took away their monopolies and privileges. Last June, the government refused an IMF loan for more than $3 billion. Last week, it had to cave in and accept that money.

All this is happening as foreign reserves have plummeted from $36 billion to nearly $10 billion, foreign investment has almost entirely stopped, tourism has seen a 30 percent decline.

Now, think about the fears voiced in the Western media about post-revolution Egypt. It's been all about the rise of Islam. We keep hearing about how the party that swept Egypt's elections, the Muslim Brotherhood, is a force to be feared. We are told stories about how Egypt will become a Sharia state and an enemy of the United States.

But the real danger to Egyptian democracy and to pro-American sentiment is the group that has always been a danger to Egyptian democracy - the military. Until they actually cede power, the Egyptian revolution remains stillborn and the country remains a military dictatorship.

And we'll be right back. Up next, an all-star panel on the economy. Stay with us.


CANDY CROWLEY, CNN CHIEF POLITICAL CORRESPONDENT: I'm Candy Crowley in Washington. FAREED ZAKARIA GPS will be back in 60 seconds, but, first, a check on the top stories.

Nelson Mandela has been released from a South African hospital. The 93-year-old Mandela had undergone surgery for abdominal ailment.

The trial of 16 U.S. aid workers charged with fraud in Egypt has been adjourned until late April. The workers, who did not appear in court today, are accused of working without a license and fueling unrest in the country.

Secretary of State Hillary Clinton tells CNN (INAUDIBLE) there are intense negotiations underway to resolve the case.

Demolition of a compound where Osama Bin Laden was killed last May is underway. Pakistani forces began raising the building in the town of Abbottabad yesterday. Pakistani authorities say they don't want the compound to become a shrine for Bin Laden's followers.

A suicide car bomber detonated explosives outside a church in Central Nigeria today. The attack killed four people. Nigeria has suffered a series of attacks on churches and mosques in the past year.

And those are your top stories. "RELIABLE SOURCES" is at the top of the hour. Now back to FAREED ZAKARIA GPS.


ZAKARIA: It was a week of mostly good news for the American economy. The Dow Jones Industrial Average flirted with 13,000. Employers were hiring. A tax holiday for citizens became a reality. The president and candidates put forward plans to reform the tax code. But are these plans smart, and will Iran and gas prices produce a new crash?

Robert Reich joins us from Berkeley where he is a professor of Public Policy. Reich was, of course, Secretary of Labor under President Clinton.

Here in New York, David Stockman ran the Office of Management and Budget under President Reagan and later worked in private equity.

And we have two of the finest journalists writing about economics, Gillian Tett is the U.S. Managing Editor of "The Financial Times" and Zanny Minton Beddoes is the Economics Editor at "The Economist." Welcome.

So Zanny, is this - is this recovery taking - taking hold?

ZANNY MINTON BEDDOES, ECONOMICS EDITOR, "THE ECONOMIST": It's taking hold. It's not taking off. Let's not get too excited, but in contrast to the last couple of years when there was a lot of optimism at the beginning of the year and it was dashed (ph), I think there are some reasons to think that a more solid recovery is beginning to go into place.

ZAKARIA: David, what do you think?

DAVID STOCKMAN, FORMER DIRECTOR, U.S. OFFICE OF MANAGEMENT AND BUDGET: I think we have another period of seasonally adjusted noise. In April and January and the warmest winter since 1868, as I understand it, so I don't think much is happening.

We're bumping along the bottom. We're not recovering. And rather than look at a month, we ought to look at a trend. We had 132.4 million jobs reported in January, non-farm payroll. Same numbers December 2000 when Clinton was president and we were hanging by our chars (ph).

Now, when you have an economy that goes 12 years, two business cycles that has not generated over time one net job, that's an economy that's sick, and we need to look at the fundamental foundation of this and the sickness that underlies and not whether we're blipping up a little bit by month or by a quarter.

I think we're going to hit a brick wall in December. There's a freight rain coming down the track. It's called $7 trillion worth of deficit impact when all the tax cuts and all the cans that we've been kicking and the tax holiday and the dot fix and all the rest of it expires. You're going to have Congress -

ZAKARIA: David, what you're talking about is the Bush tax cuts expire, plus the payroll tax cut expires, all of that stuff expires.

STOCKMAN: All of that and the AMT patch and all the tax credits and all the business benis (ph) and 100 percent depreciation, and the 1.2 trillion automatic sequester.

When the Congress is faced with that in a lame-duck session, it will be paralyzed, frozen.

MINTON BEDDOES: That's absolutely right. There is a huge risk at the end of the year. A fiscal train wreck, as you put it. And potentially, if the Bush tax cuts expire and the sequester kicks in, you have I think 3.5 percent of GDP fiscal tightening.

That's a huge wallop to a very fragile recovery. But, you know, I'm looking for something to be optimistic about, and so I think that, you know -

GILLIAN TETT, U.S. MANAGING EDITOR, "FINANCIAL TIMES": But one of the - one of the problems is we've now had three years or two years where we've had a recovery start at the beginning of the year and it's been knocked off course by seemingly unexpected events like the eurozone, like the Middle East, and you have a feeling that with every time this happens, business and consumers get just a bit more cynical, a bit more scared, a bit more uncertain about the future.

And if you look at American companies, there's a fascinating thing that's happened in the latest earnings season, which is that four out of five companies are refusing to make any predictions for the future because they simply cannot work out where the world is going.

So you look at things like the budget problems coming along, the brick wall in December. You look at the eurozone. You look at oil prices right now, and it's a pretty scary place.

So, yes, Zanny is right. The recovery is starting. It's whether it's actually going to continue that's a real worry.

ZAKARIA: Bob Reich, are you as pessimistic as David Stockman?

ROBERT REICH, FORMER U.S. SECRETARY OF LABOR: I'm not as pessimistic as David Stockman, but I am - I do share a lot of his - his caution and a lot of the worry of the other members of the panel.

We are seeing the beginnings of a recovery. There's no question about that. But there are so many question marks hanging over the future of this economy, some of which have not been mentioned.

American consumers are still under a huge debt load. Much of that is mortgage debt. Wages are going basically nowhere, adjusted for inflation. The median wage continues to drop.

You have about 23 million Americans who are still unemployed or underemployed, so you have a great number of Americans who fear that they might be in this group sometimes in the future. Confidence is returning, but confidence is not enough to build a sustained recovery on.

Abroad, I am concerned about the European debt crisis. It is still very, very fragile. The oil prices could spike and I think that they will continue to rise.

Nobody has mentioned China. I think that China over the next year could slow considerably, which would be a tremendous problem for the global economy.

So, again, I'm cautiously optimistic given the direction we're going in, but it is - I want to underscore the word "cautious."

ZAKARIA: I think we're all - all of this is sounding more cautious than optimistic.

But, Bob, let me ask you. Your solution or your proposal for some of these problems, the mortgage overhang, the debt overhang, presumably is more vigorous, remedial action by the federal government. Would that be correct?

REICH: Yes, in the short-term, Fareed. I think it is important. And I think for the federal government to continue to stimulate the economy, the word "stimulate" is not necessarily a polite word to use any longer because Republicans have condemned the economic stimulus that have been used.

But I believe that they have helped most of the economic policy. Research shows that without the economic stimulus that has already been applied, we would be in much worse shape.

Remember, the real issue with regard to the long-term deficit is the ratio of the debt to the entire economy, to the GDP. And unless we get growth back soon and get jobs back soon, that ratio is going to continue to deteriorate.

ZAKARIA: OK. Well - I know you disagree with this, David Stockman. But I want to ask you a variation of this in a state you know well. You were once a congressman from Michigan, right?


ZAKARIA: So the Michigan primary is taking place, and one of the problems that Republicans had is that none of them supported the auto bailout.

Wouldn't it be fair to say that that was a case where remedial action by the government had an impact that was positive or at least is perceived as positive? How do you make what I'm sure you're going to do - how do you make the case against the auto bailout politically not just economically?

STOCKMAN: Well, it's tough politically, but I voted against the Chrysler bailout the first time in 1980, and we should have put it out of its misery then. And the next election, I got the highest vote that I've ever gotten in an auto district in Michigan.

So I think it is not as simple politically as people think. A lot of main street businessmen know that they're not going to benefit from one of these bailouts.

Secondly, I think the auto bailout was an abomination. If we had let GM meet its demise, which it should have, and Chrysler go down the chute, which it should have, those were industrial dinosaurs that wrecked the industry anyway for years, destroying the suppliers. Finally, they were the last two standing, and they went to Washington hand in hat and they got bailed out. It's a bad time.

ZAKARIA: I have to get - I have to ask Zanny because "The Economist" which is generally though of as a pro, you know, kind of laissez faire, free market magazine supported the auto bailout. I'm guessing you probably wrote that editorial.

MINTON BEDDOES: We did support it. We supported it with somewhat of a heavy heart, but let me explain why. And with hindsight, I think we were right to support it.

We were not in ordinary times. In ordinary times, I completely agree with you. The government should not get involved in bailing out particular sectors.

The only reason to do it is if there is a broad systemic threat to the economy. I think where we were at the beginning of 2009 global - the global economy was shrinking at its fastest pace since the 1930s. We were in the middle of the worst financial crisis in 80 years.

What would have happened if these car companies had been pushed into bankruptcy? Normally, when credit markets are functioning normally, when you are in bankruptcy, you get fresh funds. You get fresh funds to help you restructure.

The credit markets were completely closed. There was no way they were going to be able to get that money, unless it came from the government.

So the alternative was liquidating Chrysler, liquidating GM, having a ripple effect on the supply chains, and I see you shaking your head. Having a huge ripple effect, at a time when the economy was imploding. For us that was sufficient reason for the government to get involved.

Now, we can argue that it wasn't perfect. There were bits that could have been done better, but basically the government went in, reorganized them, and got out again.

So as far as bail-outs go, this was a pretty well done one, and given where the economy was, I think with hindsight, we have to say that it was the cost benefit analysis. It was better doing it than not.

ZAKARIA: OK. We're going to stop with the auto bailout.

When we come back, we're going to talk about oil prices. Could they derail the recovery and the new candidate tax plans as well as President Obama's? When we come back.




ZAKARIA: And we are back with Robert Reich, David Stockman, Gillian Tett and Zanny Minton Beddoes.

Bob, let me ask you, if you were back in the administration, what would you be doing about high oil prices? Because it does strike me that this is something that has the ability to add to a slowdown in the United States. Is there anything the administration can do?

REICH: Fareed, the irony here, the paradox is that it's really very little in the short-term that any administration can do about oil prices and what really is the issue, and that is gas prices at the pump. That's what most voters react to very viscerally, and it's understandable.

But an administration of what you have a strategic petroleum reserve, you can threaten to use the strategic petroleum reserve, and thereby essentially threaten speculators who are bidding up the price of crude oil around the world, but that's about it. And that's all - that's not terribly useful thing to do under normal circumstances.

Now, you are going to almost inevitably have some sort of restriction on supply over the next two or three years. Then maybe the administration to put that bubble does need to talk about the strategic petroleum reserve, but I would hold off.

I just don't think that we are going to see an oil crisis. I think that, you know, when you look at - when you look at all of these speculators who are - I mean, you have almost no bears in this market at all.

When they are all bidding up the price of crude oil, almost anything can tip the balance in the other direction and force crude oil suddenly downward. We've seen that before. In May of last year, for example.

ZAKARIA: Do you think that's - what do you think will happen with oil? Because the demand certainly doesn't justify $105 barrel oil. I mean, China is -

STOCKMAN: I think you can address this decisively by stop beating the war drums right now. And Obama could do that, and he could say the neocons are history.

The policy that they're talking about right now is the same thing we heard in 2001, 2002, and 2003. And he needs to clearly say that we're not going to attack Iran. We're not going to permit Israel to attack Iran. They are not part of the axis of evil. They're part of the axis of medieval.

In other words, these are backward people that aren't going to threaten the western world, and we need to get into a serious process of negotiation. If we do that, the price of oil will drop $30 within a few months, and all the speculators who are on the wrong side of the ship would learn a good lesson.

But as long as the war drums continue to beat, as they are now, we're going to see this kind of speculative fraud. It's not real. It's not supply and demand world today. TETT: It's worth remembering that in terms of the euro and as the oil prices right now are higher in Europe than it is in the U.S., relatively speaking, and that's simply adding to the pressure on the eurozone economy. So it's a very nasty cocktail of issues right now that's feeding off each other.

ZAKARIA: All right. Before we go, I've got to ask you. Mitt Romney has a new tax plan. What do you think of all these Republican tax plans that are coming out?

STOCKMAN: I think they're way off base. The fundamental problem is a deficit that's gigantic and being underestimated actually going forward for a decade. It's 10 trillion at minimum.

And today a plan - an analysis was put out by the committee who's responsible of the budget that I'm part of that basically shows each of these Republicans would increase the deficit over the next 10 years. Yes, they're going to cut a little spending here and there, but there are tax cuts eat up all of that change and leave us in the hole.

So I don't know why the Republicans can't understand that unless they're willing to dramatically cut defense, which they're not, unless they're willing to take on Social Security, which they exempted in their plan for 10 years, unless they're willing to say Medicare are better off - recipients are going to have to pay a whole lot more out of pocket, there is no way that we can avoid major tax increases across the board and none of these plans even are remotely realistic about taxes, unfortunately.

So, therefore, we're going to be in a paralysis no matter who wins the election, and the Congress and the next administration will, you know, it's going to be chaotic. I can't really underestimate how difficult this is going to be and how destructive it's going to be.

ZAKARIA: So were you disappointed by Romney's plan?


ZAKARIA: He's supposed to be a business guy, a private equity guy like you.

STOCKMAN: Well, you know, it's just Republican rhetoric. It's Republican gospel. It's not really a serious possibility. Sure, it would be nice to have low taxes. Everybody would love low taxes. But we have to pay our bills in this country. We're going to have a day of reckoning here and it's going to be very unpleasant.

ZAKARIA: Final last -

TETT: At least they're actually talking about tax rather than having rather phony arguments about, you know, ideology and things like that or theology. I mean, there needs to be a proper debate about the tax issues, but precisely for the reasons that you say and the fact they're actually talking about the need to try and reform business tax is at least a positive element. MINTON BEDDOES: Well, there isn't a debate yet. On the Republican side, it's the debate that involves how much are you going to cut.

ZAKARIA: Right. How many taxes are you going to cut?

MINTON BEDDOES: Exactly. When we start having a debate that involves which taxes, what are you going to do in terms of raising revenue and what are we going to do in terms of cutting spending, then we'll start having the ingredients for real compromise. I don't see the Republican body anywhere near that yet.

ZAKARIA: On that note, David Stockman, Gillian Tett, Zanny Minton Beddoes, and Bob Reich, thank you so much.

Up next, another economics lesson, this time from the mafia. Why they're bullish on bonds. I'll explain.



ZAKARIA: The French government bowed to pressure from a powerful constituency this week against charges that it had long been discriminatory. That story is the basis for the "Question of the Week."

It is, which group in France no longer has to out itself on official forms? Is it, A) Gays and Lesbians; B) Muslims; C) Alcoholics; or D) Unmarried women?

Stay tuned. We'll tell you the correct answer. Make sure you go to for 10 more questions. And while you're there, check out the rest of our offerings on the Global Public Square website.

Remember also, can you follow us on Twitter and Facebook. And if you ever miss a show, you can now find full video episodes of GPS on iTunes. Go directly there by typing into your browser.

This week's "Book of the Week" is "Behind The Beautiful Forevers" by Katherine Boo, a superb and award-winning reporter for the "New Yorker." It's a riveting tale of the people we rarely think of in our day to day lives.

The people who Boo chronicles live in the Mumbai slums of Annawadi whose centerpiece is a lake of raw sewage. The residents mostly earn their meager existence by picking garbage and reselling what they can. Boo spent three and a half years in Annaadi, and the picture she paints, the details she presents are truly compelling.

Now for "The Last Look." For those who are worried last year that the S&P downgrade of America meant U.S. debt would be worthless, here is perhaps the ultimate proof that you were wrong. No greater moneymaking institution than the mafia is bullish on American bonds. Anti-mafia prosecutors in Europe recently confiscated $6 trillion, yes, that's trillion, in U.S. bonds from safety deposit boxes in Zurich.

Now, what was the problem? Well, just one small one. They were fake. And what fascinating fakes they were. Some were in denominations of $1 billion each and purported a date from 1934.

The U.S. Treasury says the bonds were obviously fake. The highest denomination they've ever printed was half a billion dollars, and those weren't printed until 1955.

But if they had been real, they could have paid off all the outstanding student loans and credit card debt in the United States and bought everybody in the world an iPad. Don't wait by your mailbox.

The correct answer to our GPS Challenge Question was, D, Mademoiselle was the infamous honorific for unmarried women, and it is now banned from official French forms. In the past, women had to say whether they were madam, a married woman, or mademoiselle, unmarried, but all men were simply monsieur. So au revoir, mademoiselle and au revoir to the rest of you.

Thanks for being part of the program this week. I will see you next week. Stay tuned for "RELIABLE SOURCES."